Common-size and trend percentages for a company’s net sales, cost of goods sold,

ID: 2531129 • Letter: C

Question

Common-size and trend percentages for a company’s net sales, cost of goods sold, and expenses follow:

Common-Size Percentages

Trend Percentages

Required:
a. Calculate the profit percentage for 2015, 2016 and 2017. (Round the final answers to 2 decimal places.)

b. Determine whether the company’s profit increased, decreased, or remained unchanged during this three-year period.

Common-Size Percentages

Trend Percentages

2017 2016 2015 2017 2016 2015 Net sales 100.0 % 100.0 % 100.0 % 108.1 % 106.5 % 100.0 % Cost of goods sold 57.9 54.8 51.6 115.9 112.0 100.0 Expenses 24.1 21.9 22.4 111.9 104.8 100.0

Explanation / Answer

Answers

Working

Common-Size Percentages

2017

2016

2015

Net sales

100%

Cost of goods sold

57.9%

54.8%

51.6%

Expenses

24.1%

21.9%

22.4%

D=A - B - C

Profit Percentage

18.00%

23.30%

26.00%

The above profit percentage in Requirement ‘a’ shows that percentage of profit is FALLING. But this percentage is percent of Sale of that year.

TO determine whether company’s profit has increased/decreased overtime, we have to go through TREND PERCENTAGE analysis.

It shows that when compared to 2015, 2017’s expenses have increased at higher rate as compared to increase in Net Sales. This suggests that Profits would have decreased because the increase in Net Sales (Revenue) have been less than increases in Expenses.

Hence, the profits have DECREASED during the period of 3 years.